PP 7767/09/2011(028730)

15 October 2010

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

N ew s Updat e
MARKET DATELINE
15 October 2010

MBM Resources Share Price

Fair Value
:
:
RM3.16
RM5.30
Purchase Stake In Two Companies Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (MBMR; Code: 5983) Bloomberg: MBM MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/NTA P/CF Gearing ROE GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (x) (%) (%)
2009 1,187.2 68.3 28.2 (41.7) 11.4 0.9 18.2 Net Cash 7.7 2.8
2010f 1,404.9 110.9 45.8 62.3 7.0 51.0 0.8 16.8 Net Cash 11.4 3.7
2011f 1,488.8 116.8 48.2 5.3 6.7 55.2 0.7 15.0 Net Cash 11.0 3.7
2012f 1,618.7 122.7 50.3 5.0 6.3 64.0 0.7 11.8 Net Cash 10.6 3.7
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

Issued Capital (m shares)

♦ Buying stake in two companies. The company announced yesterday that
Market Cap (RMm)
242.4
766.0
it is acquiring: 1) 70.1% (27m ordinary shares) in Kinabalu Motor Assembly Daily Trading Vol (m shs) 0.1
S/B (KMASB) from Lion Corp Bhd and Lion Forest Industries Bhd; and 2) 52wk Price Range (RM) 2.10-3.26
100% of Lion Motor S/B (LMSB) from Silverstone Corporation Bhd, CEDR Major Shareholders: (%)
Consulting Sdn Bhd, Innovasi Istimewa Sdn Bhd and Range Grove Sdn Bhd. Med-Bumikar MARA 54.0
Both the acquisitions will cost RM16m. EPF 6.9

♦ Details on both companies. KMASB is 50.1% owned by Lion Corporation

FYE Dec FY10 FY11 FY12
Berhad and 20% owned by Lion Forest Industries Berhad. The other major
EPS chg (%) - - -
shareholders are the Sabah State Government and its affiliates, which
Var to Cons (%) (10.3) (1.3) (14.9)
collectively own 29.06%. LMSB is 100% owned by Silverstone Corporation
Berhad. KMASB holds a manufacturing licence for the assembly of motor PE Band Chart
vehicles and has a distributor agreement with Anhui Jianghuai Automobile
Co. Ltd. while LMSB has a licence agreement with Dong Feng Automobile PER = 9x
PER = 7x
Co. Ltd. Based on the audited accounts of KMASB and LMSB as of 30 June PER = 5x
2010, the net assets of KMASB stand at negative RM5.78 million whilst for
LMSB at negative RM35.96 million.

♦ Purpose of acquisition. While the company mentioned that the acquisition

will provide the opportunity for the MBMR Group to expand its automotive
business, we believe the manufacturing licence for assembly of motor
Relative Performance To FBM KLCI
vehicles and the distribution of the Chinese commercial vehicles in Malaysia
are the ultimate aims of MBM. We note that both companies are currently in
negative net assets position, which means that MBM will have to turn the MBM Resources
companies around before seeing substanstial accretion to bottom-line.

♦ Risks. 1) Lower car sales arising from an economic slowdown; and 2)

Weakening of RM against US$ and Yen. FBM KLCI

♦ Forecasts. No changes to forecasts for now, as we believe the acquisitions

will have minimal near-term impact on earnings at this juncture. In terms of
impact to net cash levels, the company had a net cash position of
RM168.9m as at 2QFY10, hence there is minimal impact to the balance
sheet as well.

♦ Investment case. MBM has performed well since the beginning of the Loong Kok Wen, CFA
year, and is set to achieve new heights in FY10. We reiterate our positive (603) 92802239
loong.kok.wen@rhb.com.my
view on the stock, and thus maintain our indicative fair value of
RM5.30/share based on 11x FY11 EPS. Reiterate Outperform

Please read important disclosures at the end of this report. Page 1 of 2

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 15 October 2010

Table 2. Earnings Forecasts Table 3. Forecast Assumptions

FYE Dec (RMm) FY09 FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 1,187.2 1,404.9 1,488.8 1,618.7 Perodua TIV (k units) 195.4 196.8 202.3
Turnover growth (%) (1.3) 18.3 6.0 8.7 Daihatsu TIV (k units) 4.4 4.8 5.0
Hino TIV (k units) 3.1 3.2 3.2
Cost of Sales (1,076.0) (1,230.3) (1,291.1) (1,390.7) Volvo TIV (k units) 1.0 1.1 1.1
Gross Profit 111.2 174.6 197.7 228.0 Forex (RM:100JPY)* 3.63 3.59 3.59
* average rate
Depreciation (12.5) (20.0) (13.6) (15.0)
Net Interest 21.5 26.9 27.1 28.3
Associates 54.1 102.2 100.3 98.8

Pretax Profit 92.2 146.6 158.2 169.4

Tax (13.1) (23.2) (25.0) (26.8)
PAT 79.1 123.5 133.2 142.7
Minorities (10.8) (12.6) (16.4) (20.0)
Net Profit 68.3 110.9 116.8 122.7
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
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be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
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may from time to time have an interest in the securities mentioned by this report.

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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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actions of third parties in this respect.

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